In our recent Facing the Forces of Change® challenge paper, Creating Innovations and Shaping the Future of Business, we identified a growing movement in wholesale distribution, in which leading distributors are innovating business services as a means of fighting disruption. Since the publication of our challenge paper, our continuing research has revealed evidence of distributors striving to identify and align with market trends to find willing buyers of new service offerings. While most distributors focus on end customers for service opportunities, it may turn out that suppliers are a target-rich environment.
Suppliers are making plans for the digital age, and their actions will have significant impact on distributors. This reality is highlighted in a tED magazine article about a supplier trends study conducted by Infinity Research, first reported as Manufacturing Industry Trends: What’s New in 2019? Both articles are short and worth a read, especially for distributors that are seeking to identify and offer new services.
Infinity Research’s study offers a glimpse of the future. The report’s insights show how manufacturer plans can be used to inspire potential service offerings from distributors. My analysis follows — a quick summary of important trends highlighted in the study followed by suggestions for service-minded distributors.
- Predictive maintenance. Factories incur costs when equipment goes down. By leveraging sensors and data, predictive maintenance creates a significant opportunity for new repair paradigms. In turn, these new paradigms will lead to improved productivity. Savvy distributors are building relationships with the manufacturing engineers tasked with implementing predictive maintenance programs, and they’re doing so well in advance of inevitable changes to procurement policies and sourcing requirements. Building on these relationships, distributors can go further and offer similar programs for the products sold by suppliers to end customers.
- Reshoring. Manufacturing is returning to the U.S. as wages rise in offshore options, but also because support infrastructures in emerging markets often fall short of requirements for advanced manufacturing processes. Distributors can get out in front of this trend by telling their story through relationships with executives responsible for reshoring decisions, and by telling stories through digital marketing and social media initiatives. Services might involve programs tailored to restarting returning operations, but they should go further and include services designed to leverage the underpinnings of advanced manufacturing — factory automation, the Internet of Things, artificial intelligence and so on.
- Simplified supply chain management. Manufacturers are rethinking supply chain strategies to find simpler ways to deliver more value to end customers. These conversations are likely starting with directives from executive leadership and with initiatives launched outside of the channel management teams that are responsible for distributor sales. It is imperative that distributors know which of their suppliers are embracing this trend. More than that, distributors must proactively offer ideas and a willingness to consider new methods. Getting out in front, distributors must also take a strategic approach to their brand, ensuring that their company is seen as a thoughtful and innovative member of the supply chain.
- ERP systems. Manufacturers, like distributors, are updating their ERP systems to better leverage data and improve competitiveness. In our research, we have found distributors that are moving toward sharing their inventory and point-of-sales data in real time through live access. Their goal is to leverage top suppliers’ capabilities around big data and artificial intelligence and to jumpstart collaboration around digital marketing and coordinated sales and service capabilities. We have even heard of one manufacturer asking its distributors to get on the same ERP platform. From one point of view, all of this movement is an effort to save traditional value chains and fend off challenges from disruptors. To do this effectively, distributors must demonstrate knowledge of supplier plans around updating ERP platforms and force a conversation as early as possible in the manufacturers’ shopping and decision-making process.
Our quick analysis points to several essential requirements for distributors. Distributors must be aware of how their suppliers are embracing these trends and developing new strategies. This requires attention to reported trends and studies, but service-minded distributors must go further and develop deep and broad relationships with their suppliers. Relationships with executives are necessary to “get in at the start” of supplier planning, while relationships with planning teams are required to explore opportunities for collaboration and services.
Distributors will not succeed without bringing something to the table. Some examples of ways to demonstrate value include suggestions for leveraging the distributor’s knowledge about supply chain best practices and ERP implementations, displaying a willingness to collaborate with open data, developing resource commitments, and making commitments to improving the manufacturer’s operations for achieving strategic goals.
All of this requires distributors to approach suppliers as customers, with a willingness to listen and to identify and offer new solutions. New strategic relationships are essential, as is knowledge of supply chain and technology trends that go beyond what is necessary to run a distributor’s business. To be successful at developing services aligned with critical trends for manufacturing, distributors must be willing to collaborate, adjust their business model and build an airtight business case for replacing traditional channel compensation programs with new service-based partnerships.
Hard work lies ahead, but if services are an essential requirement for defeating the threat of disruption, distributors’ success depends on elevating their relationships with suppliers and understanding their operations on a deeper level. In fact, suppliers may become distributors’ most important customers.
As a Fellow for the NAW Institute for Distribution Excellence and the lead researcher for the next Facing the Forces of Change® report, I welcome your feedback on this article and your ideas and suggestions for how distributors may survive and thrive in the digital age. Please reach out to me at email@example.com.
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